AOL buys San Mateo startup Adap.tv for more than $400 million

Associated Press

Posted:
08/07/2013 10:25:01 AM PDT

Updated:
08/07/2013 11:04:09 AM PDT

NEW YORK -- AOL reported a 2 percent revenue increase for the second quarter on Wednesday and said it is buying San Mateo-based video-advertising platform Adap.tv for $405 million, as it bets on the lucrative promise of online video ads.

CEO Tim Armstrong said the Adap.tv purchase "will make AOL a clear global leader in the most important growth segment in our industry -- online video."

—The Adap.tv founders and team are on a mission to make advertising as easy as e-commerce and the two companies together will aggressively pursue that vision," Armstrong said in a statement.

The $405 million purchase price includes about $322 million in cash and about $83 million in AOL stock. AOL said it expects to close the deal for the company in the third quarter.

Research firm eMarketer expects spending on digital video advertising in the U.S. to grow 41 percent to $4.09 billion this year, up from $2.89 billion last year.

The Internet company earned $28.5 million, or 35 cents per share, in the April-June quarter. That's down 97 percent from $970.8 million, or $10.17 per share, in the same period a year earlier. The year-ago results included a gain of $970 million from a patent deal with Microsoft. Excluding one-time items totaling 11 cents per share, AOL would have earned 46 cents per share in the latest quarter, surpassing Wall Street's expectations.

Analysts, on average, were expecting earnings of 44 cents per share, on revenue of $544.6 million, according to FactSet.

AOL increased its advertising revenue by 7 percent to $361.2 million from $337.8 million. Subscription revenue continued to fall as fewer people signed up for the company's fading dial-up Internet service. It was down 5 percent to $166 million from $175.5 million.

Shares of New York-based AOL rose 83 cents, or 2.3 percent, to $37.02 in late morning trading. The stock has traded in the 52-week range of $29.16 and $43.93, and is up about 25 percent since the start of the year.